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‘Why Nigeria’s telecommunication sector is struggling to attract new investments’

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Goodluck SOURCE:THE NEW TIMES

Akinwale Goodluck is Head of Africa, Global System for Mobile communications Association (GSMA), a body that represents the interests of mobile network operators worldwide.

A solicitor of the Supreme Court, he has had a career spanning investment banking and legal practice. In the last 15 years, Goodluck has been engaged in the information and communications technology (ICT) sector, including working with MTN Nigeria at an executive level.

Goodluck, in this interview with ADEYEMI ADEPETUN, explains the type of challenges confronting Nigeria’s telecoms sector, dangers of imposing nine per cent Communication Service Tax, Right of Way, among others.

What do you see as the greatest threat to telecoms sector growth in Nigeria, cum SSA?
When you look at all the stakeholders in the industry, I mean the regulator, consumers, the objective of government in terms of broadband and the digital economy, expectations of government regarding the development of the industry, and the interest of investors, I think the biggest threat to all these stakeholders is the continued declining investments by Mobile Network Operators (MNOs) and the struggle of the sector to attract funding compared to the Internet giants for example.

The inability to attract the right funding is a direct consequence of the problems with declining margins in the industry, and this is driven largely by regulators, excessive competition, which leads to reduction in tariffs. In my opinion, I think if this is not checked, the future of the industry is not sustainable, and it poses the greatest threat to the goals of stakeholders in Nigeria.

Across sub-Saharan Africa (SSA), we have seen a wave of consolidation, which in itself is not a bad idea. But, we also need to be careful that the unsustainable environment does not lead to more operators becoming insolvent, doesn’t lead to poor network quality, government not being able to achieve its revenue expectation and investors not being able to get returns on their investments.

There are still the problems around affordability of available spectrum. Most operators in SSA now are in the throes of expanding their 3G and 4G networks, and perhaps the biggest constraint is the availability of predictable spectrum. That is another threat to the industry. I also think that across SSA as well, multiple taxation has continued to be a threat to the service providers.

There is a need for the industry to address the issues around margins and having a sustainable inclusive mobile sector. The way the industry is now, with tariffs reducing yearly, this is not sustainable. We have seen this happened in other geographies, I think in India for instance, it was not sustainable. So, I think lots of work need to be done by the industry regulators and all stakeholders to have a sector that enjoys the confidence of investors. When people are investing, there will be network roll outs with better quality of service, innovation, improved customer experience and all these will drive the digital economy.

Are there things the GSMA is doing to bring sanity to the sector?
The GSMA has been at the fore front of building and advocating for a sustainable mobile sector. The GSMA continues to work with regulators, policy makers, and other stakeholders to drive global best practices for the industry so that it can exceed the expectations of all stakeholders.

Next month at the Mobile World Congress in Barcelona, Spain, the GSMA will convene meetings at the ministerial levels to discuss regulations, policy, market developments, growth potential of the sector, challenges that must be tackled as fast as possible. At the meeting, we are expecting about 150 government delegations. Nigeria is always well represented.

The GSMA is also helping to build trust among stakeholders and helping to drive economies of scale for MNOs. More recently, we were involved at the World Radio Conference in Egypt, coordinating industry across the world to ensure that in terms of spectrum allocation and future allocation of 5G was well positioned and I think we achieved remarkable results.

What is your take on the proposed nine per cent Communication Service Tax in Nigeria?
Indeed, the issue of sector-specific Communications Service Tax (CST) of nine per cent is one of great concern for the industry. I think, all stakeholders in the sector need to pay particular attention to this because it will bring significant negative consequences to the industry. This will be an additional burden, and for the lack of a better word, it will cripple the digital economy, mobile penetration, Internet adoption, and broadband deployment of the Federal Government of Nigeria.

The world that we live in today, jobs will be created significantly online. Therefore, to drive economic and inclusive prosperity, we have lots of work to do in terms of bringing more people online. We need to remove the barriers, and not impose another. The proposed tax will do the exact opposite. It will foster digital and financial challenges. It will also impact the most vulnerable members of the society. The tax is a significant departure from best practice as promoted by the World Bank. It will have adverse impact on the expansion of mobile services across the country. I think Nigeria should look at alternative sources of revenue generation. Across the world, we have come to realise that the use of technology to drive financial services has been very crucial. The issues around affordability have always been a barrier in SSA and Nigeria is no different. We feel that there is still a sub-optimal level of internet penetration. Nine per cent CST will definitely be a barrier for people to go online, and this will prevent Nigeria from reaching its development goals. We absolutely cannot afford to do that. All stakeholders must work together to ensure that the CST doesn’t become a law in Nigeria.

With the CST bill, I will reiterate that government’s digital agenda is at serious risk. There is always an opportunity to look at alternative way of generating revenue, by looking at the successes achieved in countries like Kenya and Ivory Coast.

We mustn’t get carried away in Nigeria by saying that everybody has a mobile phone, it is not true. Lots of people are still without mobile phones. There is also the need to increase the rate of internet adoption. This is very important. Internet adoption in Nigeria is still at about 34 per cent. So, that shows we still have a long way to go in terms of connecting people and creating value for the economy.

Can you shed light on some studies carried out by GSMA, which revealed dangers of multiple taxation in the mobile sector in other climes?
Lots of studies have been carried out by the GSMA all over the world. Essentially, all of them talked about the impact of broadband and the resultant consequence of investing in this sector, and what it does to the GDP of the countries involved. We have seen the World Bank conduct studies, which revealed that with a 10 per cent increase in mobile broadband penetration in low to middle income countries, there is always a 1.3 percentage increase in GDP growth. I think more recently, the International Telecommunications Union (ITU) also found out that 10 per cent increase in mobile penetration in a circle of African countries led to 2.5 per cent increase in GDP per capita. I think it is very clear that anything that punishes investments will have a very direct negative consequence on internet adoption, broadband and Smartphone penetration, among others.

What is the current status of the mobile ecosystem in SSA?
Looking at the SSA, the current status showed a mixture of green, red, and amber. We have green, which is relatively strong, consolidated revenue growth is reported by operators as at quarter three, 2019. We have seen very strong performance from operators in countries like Kenya, Ghana, and Nigeria. Perhaps, less robust numbers from countries like Ivory Coast and South Africa. In markets where performance has been less robust, it has been largely driven by regulatory developments, and increased competitive pressure. So, all in all, I think most of the operators in SSA are moving in the right direction, especially when you look the consolidated position of some markets.

Another key development spotted in the region is the emerging role of data and Fintechs. Historically, voice revenues have constituted over 70 per cent of operators revenue in SSA, but this is rapidly changing with data and mobile money contributing a greater share of operators’ revenue. If you look at an operator like Safaricom of Kenya, mPesa now accounts for more than a third of Safaricom’s revenue, up from a quarter this same time last year. So, this is further justification that regulators must create a more conducive environment for telecom operators to play in the mobile money space across Africa. The telecom operators need the right footprints, licenses, and enabling environment for them to play in the mobile money space.

Another trend that we will see gain traction in SSA is what we call the Open Radio Access Network (Open RAN). We have seen MTN and Vodafone announcing major trials and deployments of Open RAN. It is clear to operators that a more vendor-agnostic future for the Radio Access Network is a compelling proposition for operators in SSA. Moreso, when you take into consideration, the supply chain challenges that the industry is dealing with and the particular exposure of SSA MNOs to those supply chain issues – which are a direct consequence of the feud between China and the USA, and its impact on companies like Huawei, which are key suppliers in SSA.

Another interesting trend in the region is that data fees are rising. Although, we still lag behind in global average by serious margins, if you look at SSA, only six countries in the entire Africa are in the top 100 countries in terms of mobile broadband penetration.  I am talking about countries like South Africa, Angola, and Mauritius. Nigeria and others are still not on the first 100. This means that Nigeria still has a lot of work to do. Smartphone adoption is also gaining traction. We have continued to see double digits growth pattern across the markets in SSA. Nigeria is a key player in that space, and we know that the country is doing very well there. A lot of operators are now pushing up their investments in that space, especially in the deployment of 3G, and 4G.

Now in SSA, we have more 3G connections than 2G, and we envisage that by 2023, we will have more 4G connections and this will lead to rationalizing the number of standards operators are running.

Mobile Money is not growing as envisaged, but how do you see the PSB license handed to some telcos impact on that sub-sector?
The licensing of telecoms operators is definitely a step in the right direction. It is very clear that mobile money can only scale when MNOs are allowed to invest, given the right licensing instruments and more importantly, are not shackled but allowed to deploy mobile money across their areas of operations. We have seen significant Mobile Money growth, at a faster rate in West Africa at the moment with great performance coming from Ivory Coast and Ghana. These are direct consequences of an optimised licensing regime. Definitely, we need to review how those licenses will be issued. There is need for more licensing, and MNOs must work with the financial sector so that they can deliver a mobile money regime that will meet and support the financial inclusion objectives of government.

In 2018, the GSMA team was in Abuja to discuss 5G deployment with NCC. Late last year, MTN started 5G trials. Can we really say the country is ready?
All over the world, lots of countries have started 5G trials. We have seen commercial 5G roll out in USA, China, South Korea, UK, and others. 5G is a new frontier in the area of telecommunications, which must be welcomed.

Now, coming home to Nigeria and SSA, most stakeholders expect that commercial 5G network will be launched not earlier than 2025. 5G in Nigeria and SSA is inevitable, but I dare say that it is not imminent. Aside from the lack of a proven or probable business case for 5G in SSA, there are several significant limiting factors for 5G value proposition. For instance, the level of densification required for a 5G network will require a paradigm shift in roll out of cells. There must be availability of power, and I don’t mean generator-driven power. We will start late in some part of SSA, but the beauty of starting late is that the region will now have the benefit of hindsight in terms of economies of scale, equipment would have been proven and tested, business cases would have been established, among others.

The primary objectives should be optimizing our 3G, and more importantly growing 4G across SSA. We need to also build the pipe for 3G and 4G because capacities are still slow. So, for the SSA, I will say lets wrap up 3G, 4G, and let’s avoid a race to the bottom by starting a 5G race to nowhere.

The issue of data price war ranging in the sector in Nigeria, what is your take on it?
From GSMA perspective, we don’t like to comment on commercials because of anti-trust issues. We stay away from commenting on issues of pricing by operators, and the industry, but we are good advocates of quality of service, among others. We help our members to ensure that best practice. Issue of pricing is left to be determined between the regulator, and the operator based on sector specifics.

How can we move the sector forward in Nigeria?
The industry in Nigeria is in a good state and there are still vast opportunities for growth. I think spectrum administration is to be reviewed and made to be administered in a manner that will benefit the largest number of subscribers. We need to have policies and regulations that encourage operators to continue to invest in broadband network. Government must also create the enabling environment, must look at reducing taxation, unlocking the Right of Way logjam, and liberalise issues around it. Government must also ensure there is transparent access and affordable spectrum. Government must look seriously at affordability barriers, and ensure that we do not do things that further create more and more barriers to the industry.

Also, as nation, we must start to look at improving local content, our digital literacy strategy must be reviewed, and ensure that we can bring the country’s teeming young people online to do productive things that will drive the digital economy, create jobs and ultimately help the government achieve its objective and goals for the citizenry.

QUOTE
Therefore, to drive economic and inclusive prosperity, we have lots of work to do in terms of bringing more people online. We need to remove the barriers, and not impose another. The proposed tax will do the exact opposite. It will foster digital and financial challenge. It will also impact the most vulnerable members of the society. The tax is a significant departure from best practice as promoted by the World Bank. It will have adverse impact on the expansion of mobile services across the country.


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